Neutrality of Narrative Discussion in Annual Reports of UK Listed Companies

Journal of Applied Accounting Research

34 Pages Posted: 7 Jul 2020 Last revised: 9 Jul 2020

See all articles by Venancio Tauringana

Venancio Tauringana

University of Southampton

H Gin Chong

Prairie View A&M University - College of Business

Date Written: 2004

Abstract


This paper reports the results of a pilot study of an investigation of the neutrality of narrative discussion in annual reports of UK listed companies. Two indices, one each of ‘good’ news and ‘bad’ news contained in the statutory accounts were developed for each company on the basis of a pilot survey of finance directors. Another two indices, one each of ‘good’ news and ‘bad’ news were developed from the narrative section of the annual report for each company on the basis of whether the narrative discussion referred to selected items in the index of ‘good’ news or ‘bad’ news respectively, appearing in the statutory accounts. The narrative discussion and statutory accounts indices of ‘good’ news were compared for equality of means. Similarly the narrative discussion and statutory accounts indices of ‘bad’ news were compared. Finally, the proportions of ‘good’ news to ‘bad’ news in the narrative section of the annual report were compared to that of the statutory accounts section. The results indicate that narrative discussion index of ‘good’ news is significantly higher than that of the statutory accounts section. The results of the comparison of the narrative discussion and statutory accounts indices of ‘bad’ news suggest that mean of the former is significantly lower than the latter. The results of a comparison of the proportion of ‘good’ to ‘bad’ news in the narrative section to that of the statutory accounts section suggest that the proportion of ‘good’ to ‘bad’ news in the narrative section is higher than that of the statutory accounts. The implication of the results is that management focus on ‘good’ news and say little about ‘bad’ news contained in the statutory accounts in their narrative discussion. Hence the overall suggestion from the results is that management are not neutral in their narrative discussion.

Keywords: Neutrality, narrative discussion, statutory accounts, annual reports,good news, bad news

JEL Classification: M1, M4,M42

Suggested Citation

Tauringana, Venancio and Chong, H Gin, Neutrality of Narrative Discussion in Annual Reports of UK Listed Companies (2004). Journal of Applied Accounting Research, Available at SSRN: https://ssrn.com/abstract=3643948

Venancio Tauringana

University of Southampton ( email )

University Road
Southampton, Hampshire SO17 1BJ
United Kingdom
+442380591843 (Phone)

H Gin Chong (Contact Author)

Prairie View A&M University - College of Business ( email )

Prairie View, TX
United States

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